REGULATIONS

Vol. 34 Iss. 11 - January 22, 2018

REGISTRAR'S NOTICE: The
Department of Medical Assistance Services is claiming an exemption from Article
2 of the Administrative Process Act in accordance with § 2.2-4006 A 4 a of
the Code of Virginia, which excludes regulations that are necessary to conform
to changes in Virginia statutory law where no agency discretion is involved.
The Department of Medical Assistance Services will receive, consider, and
respond to petitions by any interested person at any time with respect to
reconsideration or revision.

1. At 12VAC30-70-221 and 12VAC30-70-381, change the
methodology for cost claims used to rebase weights to a methodology that uses
per-diems and cost-to-charge ratios by cost center for the fee-for-service and
managed care claims, effective July 1, 2016. In a similar fashion, each
hospital's total costs by claim using this methodology is divided by the total
charges for the hospital cost-to-charge ratio.

2. At 12VAC30-70-281 and 12VAC30-70-291, update the
regulation to indicate that effective July 1, 2017, (i) the Department of
Medical Assistance Services (DMAS) increases the formula for indirect medical
education (IME) for freestanding children's hospitals with greater than 50%
Medicaid utilization in 2009 as a substitute for disproportionate share
hospital (DSH) payments to be identical to the formula used for Type One
hospitals and (ii) supplemental payments shall be made for medical residency
slots for primary care, high need specialties, and underserved areas to the
following hospitals for the specified number of primary residencies: Sentara
Norfolk General, Carilion Medical Center, Centra Lynchburg Hospital, Riverside
Regional Medical Center, and Bon Secours St. Francis Medical Center.

4. At 12VAC30-80-30, (i) eliminate subdivision A 1 related
to limitations for emergency physician services; (ii) at subdivision A 17 b,
include information regarding how supplemental payments are calculated for
Children's Hospital of the King's Daughters effective July 1, 2015; and (iii)
add a new subdivision A 19 regarding supplemental payments for services provided
by physicians at freestanding children's hospitals serving children in Planning
District 8 (Children's National Health System).

5. At 12VAC30-80-36 B 4 a, add language regarding the
inflation adjustment to hospital costs, limiting the adjustment for inflation
to 50% of inflation adjustment for state fiscal year 2017 and eliminating
inflation in state fiscal year 2018.

6. At 12VAC30-80-180 and 12VAC30-80-200, limit the
inflation to 50% of inflation for home health and outpatient rehabilitation
agencies in fiscal year 2018.

7. At 12VAC30-90-44, update the price for each nursing
facility peer group and other changes to peer groups.

8. At 12VAC30-90-264, convert the specialized care rate
methodology to a fully prospective state fiscal year rate, effective July 1,
2016, consistent with the existing cost-based methodology by adding inflation
to the per diem costs subject to existing ceilings for direct, indirect, and
ancillary costs from the most recent settled cost report prior to the state
fiscal year for which the rates are being established. DMAS shall use the state
fiscal year inflation rate recently adopted for regular nursing facilities.
Partial year inflation shall be applied to per diem costs if the provider
fiscal year end is different than the state fiscal year. Ceilings shall also be
maintained by state fiscal year.

The amendments conform the regulations to Chapter 665 of
the 2015 Acts of Assembly, Chapter 780 of the 2016 Acts of Assembly, and
Chapter 836 of the 2017 Acts of Assembly.

B. The following methodologies shall apply under the
prospective payment system:

1. As stipulated in 12VAC30-70-231, operating payments for DRG
cases that are not transfer cases shall be determined on the basis of a
hospital specific operating rate per case times relative weight of the DRG to
which the case is assigned.

2. As stipulated in 12VAC30-70-241, operating payments for per
diem cases shall be determined on the basis of a hospital specific operating
rate per day times the covered days for the case with the exception of payments
for per diem cases in freestanding psychiatric facilities. Payments for per
diem cases in freestanding psychiatric facilities licensed as hospitals shall
be determined on the basis of a hospital specific rate per day that represents
an all-inclusive payment for operating and capital costs.

3. As stipulated in 12VAC30-70-251, operating payments for
transfer cases shall be determined as follows: (i) the transferring hospital
shall receive an operating per diem payment, not to exceed the DRG operating
payment that would have otherwise been made and (ii) the final discharging
hospital shall receive the full DRG operating payment.

4. As stipulated in 12VAC30-70-261, additional operating
payments shall be made for outlier cases. These additional payments shall be
added to the operating payments determined in subdivisions 1 and 3 of this
subsection.

5. As stipulated in 12VAC30-70-271, payments for capital costs
shall be made on an allowable cost basis.

6. As stipulated in 12VAC30-70-281, payments for direct
medical education costs of nursing schools and paramedical programs shall be
made on an allowable cost basis. For Type Two hospitals, payment for direct
graduate medical education (GME) costs for interns and residents shall be made
quarterly on a prospective basis, subject to cost settlement based on the number
of full timefull-time equivalent (FTE) interns and residents as
reported on the cost report. Effective April 1, 2012, payment for direct GME
for interns and residents for Type One hospitals shall be 100% of allowable
costs.

7. As stipulated in 12VAC30-70-291, payments for indirect
medical education costs shall be made quarterly on a prospective basis.

8. As stipulated in 12VAC30-70-301, payments to hospitals that
qualify as disproportionate share hospitals shall be made quarterly on a
prospective basis.

C. The terms used in this article shall be defined as
provided in this subsection:

"AP-DRG" means all patient diagnosis related
groups.

"APR-DRG" means all patient refined diagnosis
related groups.

"Base year" means the state fiscal year for which
data is used to establish the DRG relative weights, the hospital case-mix
indices, the base year standardized operating costs per case, and the base year
standardized operating costs per day. The base year will change when the DRG payment
system is rebased and recalibrated. In subsequent rebasings, the Commonwealth
shall notify affected providers of the base year to be used in this
calculation.

"Base year standardized costs per case" means the
statewide average hospital costs per discharge for DRG cases in the base year.
The standardization process removes the effects of case-mix and regional
variations in wages from the claims data and places all hospitals on a
comparable basis.

"Base year standardized
costs per day" means the statewide average hospital costs per day for per
diem cases in the base year. The standardization process removes the effects of
regional variations in wages from the claims data and places all hospitals on a
comparable basis. Base year standardized costs per day were calculated
separately, but using the same calculation methodology, for the different types
of per diem cases identified in this subsection under the definition of
"per diem cases."

"Cost" means allowable cost as defined in
Supplement 3 (12VAC30-70-10 through 12VAC30-70-130) and by Medicare principles
of reimbursement.

"Disproportionate share
hospital" means a hospital that meets the following criteria:

1. A Medicaid inpatient
utilization rate in excess of 14%, or a low-income patient utilization rate
exceeding 25% (as defined in the Omnibus Budget Reconciliation Act of 1987 and
as amended by the Medicare Catastrophic Coverage Act of 1988); and

2. At least two obstetricians
with staff privileges at the hospital who have agreed to provide obstetric
services to individuals entitled to such services under a state Medicaid plan.
In the case of a hospital located in a rural area (that is, an area outside of
a Metropolitan Statistical Area as defined by the Executive Office of
Management and Budget), the term "obstetrician" includes any
physician with staff privileges at the hospital to perform nonemergency
obstetric procedures.

3. Subdivision 2 of this
definition does not apply to a hospital:

a. At which the inpatients are
predominantly individuals under 18 years of age; or

b. Which does not offer
nonemergency obstetric services as of December 21, 1987.

"DRG" means diagnosis related groups.

"DRG cases" means medical/surgicalmedical
or surgical cases subject to payment on the basis of DRGs. DRG cases do not
include per diem cases.

"DRG relative weight" means the average
standardized costs for cases assigned to that DRG divided by the average
standardized costs for cases assigned to all DRGs.

"Hospital case-mix
index" means the weighted average DRG relative weight for all cases
occurring at that hospital.

"Medicaid utilization percentage" or "Medicaid
inpatient utilization rate" is equal to the hospital's total Medicaid
inpatient days divided by the hospital's total inpatient days for a given
hospital fiscal year. The Medicaid utilization percentage or Medicaid inpatient
utilization rate includes days associated with inpatient hospital services provided
to Medicaid patients but reimbursed by capitated managed care providers. This
definition includes all paid Medicaid days and nonpaid/deniednonpaid
or denied Medicaid days to include medically unnecessary days,
inappropriate level of care service days, and days that exceed any maximum day
limits (with appropriate documentation). The definition of Medicaid days does
not include any general assistance, Family Access to Medical Insurance Security
(FAMIS), State and Local Hospitalization (SLH), charity care, low-income care,
indigent care, uncompensated care, bad debt, or Medicare dually eligible days.
It does not include days for newborns not enrolled in Medicaid during the
fiscal year even though the mother was Medicaid eligible during the
birth. Effective July 1, 2014, the definition for Medicaid utilization
percentage or Medicaid inpatient utilization rate is defined in 12VAC30-70-301
C.

"Medicare wage index" and the "Medicare
geographic adjustment factor" are published annually in the Federal
Register by the Health Care Financing Administration. The indices and factors
used in this article shall be those in effect in the base year.

"Operating cost-to-charge ratio" equals the
hospital's total operating costs, less any applicable operating costs for a
psychiatric distinct part unit (DPU), divided by the hospital's total charges,
less any applicable charges for a psychiatric DPU. The operating
cost-to-charge ratiocosts shall be calculated using data from
cost reports from hospital fiscal yearsby multiplying the per diems and
ancillary cost-to-charge ratios from each hospital's cost ending in the
state fiscal year used as the base year to the corresponding days and
ancillary charges by revenue code for each hospital's groupable cases.

"Outlier adjustment factor" means a fixed factor
published annually in the Federal Register by the Health Care Financing
Administration. The factor used in this article shall be the one in effect in
the base year.

"Outlier cases" means those DRG cases, including
transfer cases, in which the hospital's adjusted operating cost for the case
exceeds the hospital's operating outlier threshold for the case.

"Outlier operating fixed loss threshold" means a
fixed dollar amount applicable to all hospitals that shall be calculated in the
base year so as to result in an expenditure for outliers operating payments
equal to 5.1% of total operating payments for DRG cases. The threshold shall be
updated in subsequent years using the same inflation values applied to hospital
rates.

"Psychiatric cases" means cases with a principal
diagnosis that is a mental disorder as specified in the ICD, as defined in
12VAC30-95-5. Not all mental disorders are covered. For coverage information,
see Amount, Duration, and Scope of Services, Supplement 1 to Attachment 3.1 A
& B (12VAC30-50-95 through 12VAC30-50-310). The limit of coverage of 21
days in a 60-day period for the same or similar diagnosis shall continue to
apply to adult psychiatric cases.

"Psychiatric operating cost-to-charge ratio" for
the psychiatric DPU of a general acute care hospital means the hospital's
operating costs for a psychiatric DPU divided by the hospital's charges for a
psychiatric DPU. In the base year, this ratio shall be calculated as described
in the definition of "operating cost-to-charge ratio" in this
subsection, using data from psychiatric DPUs.

"Readmissions" means when patients are readmitted
to the same hospital for the same or a similar diagnosis within five days of
discharge. Such cases shall be considered a continuation of the same stay and
shall not be treated as new cases. Similar diagnoses shall be defined as ICD
diagnosis codes possessing the same first three digits. As used here, the term
"ICD" is defined in 12VAC30-95-5.

"Rehabilitation operating cost-to-charge ratio" for
a rehabilitation unit or hospital means the provider's operating costs divided
by the provider's charges. In the base year, this ratio shall be calculated as
described in the definition of "operating cost-to-charge ratio" in
this subsection, using data from rehabilitation units or hospitals.

"Statewide average labor portion of operating
costs" means a fixed percentage applicable to all hospitals. The
percentage shall be periodically revised using the most recent reliable data
from the Virginia Health Information (VHI), or its successor.

"Transfer cases" means DRG cases involving patients
(i) who are transferred from one general acute care hospital to another for
related care or (ii) who are discharged from one general acute care hospital
and admitted to another for the same or a similar diagnosis within five days of
that discharge. Similar diagnoses shall be defined as ICD diagnosis codes
possessing the same first three digits. As used here, the term "ICD"
is defined in 12VAC30-95-5.

"Type One hospitals" means those hospitals that
were state-owned teaching hospitals on January 1, 1996.

D. The all patient diagnosis related groups (AP-DRG) grouper
shall be used in the DRG payment system. Effective October 1, 2014, DMAS shall
replace the AP-DRG grouper with the all patient refined diagnosis related
groups (APR-DRG) grouper for hospital inpatient reimbursement. The APR-DRG
grouper will produce a DRG as well as a severity level ranging from 1 to 4.
DMAS shall phase in the APR-DRG weights by blending in 50% of the full APR-DRG
weights with 50% of fiscal year (FY) 2014 AP-DRG weights for each APR-DRG group
and severity level in the first year. In the second year, the blend will be 75%
of full APR-DRG weights and 25% of the FY 2014 AP-DRG weights. Full APR-DRG
weights shall be used in the third year and succeeding years for each APR-DRG
group and severity. DMAS shall notify hospitals when updating the system to
later grouper versions.

E. The primary data sources used in the development of the
DRG payment methodology were the department's hospital computerized claims
history file and the cost report file. The claims history file captures
available claims data from all enrolled, cost-reporting general acute care
hospitals, including Type One hospitals. The cost report file captures audited
cost and charge data from all enrolled general acute care hospitals, including
Type One hospitals. The following table identifies key data elements that were
used to develop the DRG payment methodology and that will be used when the
system is recalibrated and rebased.

Data Elements for DRG Payment
Methodology

Data Elements

Source

Total charges for each
groupable case

Claims history file

Number of groupable cases in
each DRG

Claims history file

Total number of groupable
cases

Claims history file

Total charges for each DRG
case

Claims history file

Total number of DRG cases

Claims history file

Total charges for each acute
care psychiatric case

Claims history file

Total number of acute care
psychiatric days for each acute care hospital

Claims history file

Total charges for each
freestanding psychiatric case

Medicare cost reports

Total number of psychiatric
days for each freestanding psychiatric hospital

Medicare cost reports

Total charges for each
rehabilitation case

Claims history file

Total number of rehabilitation
days for each acute care and freestanding rehabilitation hospital

Claims history file

Operating cost-to-charge ratio
for each hospital

Cost report file

Operating cost-to-charge ratio
for each freestanding psychiatric facility licensed as a hospital

Medicare cost reports

Psychiatric operating
cost-to-charge ratio for the psychiatric DPU of each general acute care
hospital

Cost report file

Rehabilitation cost-to-charge
ratio for each rehabilitation unit or hospital

1. Payments for these direct medical education costs shall be
made in estimated quarterly lump sum amounts and settled at the hospital's
fiscal year end.

2. Final payment for these direct medical education (DMedEd)
costs shall be the sum of the fee-for-service DMedEd payment and the managed
care DMedEd payment. Fee-for-service DMedEd payment is the ratio of Medicaid
inpatient costs to total allowable costs, times total DMedEd costs. Managed
care DMedEd payment is equal to the managed care days times the ratio of
fee-for-service DMedEd payments to fee-for-service days.

B. Effective with cost reporting periods beginning on or
after July 1, 2002, direct graduate medical education (GME) costs for interns
and residents shall be reimbursed on a per-resident prospective basis, subject
to cost settlement as outlined in this subsection except that on or after April
1, 2012, payment for direct GME for interns and residents for Type One
hospitals shall be 100% of allowable costs as outlined in subsection C of this
section.

1. The methodology provides for the determination of a
hospital-specific base period per-resident amount to initially be calculated
from cost reports with fiscal years ending in state fiscal year 1998 or as may
be rebased in the future and provided to the public in an agency guidance
document. The per residentper-resident amount for new qualifying
facilities shall be calculated from the most recently settled cost report. This
per-resident amount shall be calculated by dividing a hospital's Medicaid
allowable direct GME costs for the base period by its number of interns and
residents in the base period yielding the base amount.

2. The base amount shall be updated annually by the moving
average values in the Virginia-Specific Hospital Input Price Index as described
in 12VAC30-70-351. The updated per-resident base amount will then be multiplied
by the weighted number of full-time equivalent (FTE) interns and residents as
reported on the annual cost report to determine the total Medicaid direct GME
amount allowable for each year. Payments for direct GME costs shall be made in
estimated quarterly lump sum amounts and settled at the hospital's fiscal year
end based on the actual number of FTEs reported in the cost reporting period.
The total Medicaid direct GME allowable amount shall be allocated to inpatient
and outpatient services based on Medicaid's share of costs under each part.

1. Type One hospitals shall submit annually separate FFS and
MCO GME cost schedules, approved by the agency, using GME per diems and GME
ratios of cost to charges (RCCs) from the Medicare and Medicaid cost reports
and FFS and MCO days and charges. Type One hospitals shall provide information
on managed care days and charges in a format similar to FFS.

2. Interim lump sum GME payments for interns and residents
shall be made quarterly based on the total cost from the most recently audited
cost report divided by four and will be final settled in the audited cost
report for the fiscal year end in which the payments are made.

E. Effective July 1, 2017, the Department of Medical
Assistance Services (DMAS) shall make supplemental payments to the following
hospitals for the specified number of primary care residencies: Sentara Norfolk
General (two residencies), Carilion Medical Center (six residencies), Centra
Lynchburg General Hospital (one residency), Riverside Regional Medical Center
(two residencies), and Bon Secours St. Francis Medical Center (two
residencies). DMAS shall make supplemental payments to Carilion Medical Center
for two psychiatric residencies. The supplemental payment for each residency
shall be $100,000 annually minus any Medicare residency payment for which the
hospital is eligible. Supplemental payments shall be made for up to four years
for each new qualifying resident. A hospital will be eligible for the
supplemental payments as long as the hospital maintains the number of residency
slots in total and by category. Payments shall be made quarterly following the
same schedule for other medical education payments. Subsequent to the new award
of a supplemental payment, the hospital must provide documentation annually by
August 1, 2017, that it continues to meet the criteria for the supplemental
payments and must report any changes during the year to the number of
residents.

12VAC30-70-291. Payment for indirect medical education costs.

A. Hospitals shall be eligible to receive payments for
indirect medical education (IME). Out-of-state cost reporting hospitals are
eligible for this payment only if they have Virginia Medicaid utilization in
the base year of at least 12% of total Medicaid days. These payments recognize
the increased use of ancillary services associated with the educational process
and the higher case-mix intensity of teaching hospitals. The payments for
indirect medical education shall be made in estimated quarterly lump sum amounts
and settled at the hospital's fiscal year end.

B. Final payment for IME shall be determined as follows:

1. Type One hospitals shall receive an IME payment equal to
the hospital's Medicaid operating reimbursement times an IME percentage
determined as follows (this formula also applies to Children's Hospital of
the King's Daughters effective July 1, 2013):

An IME factor shall be calculated for each Type One hospital
and shall equal a factor that, when used in the calculation of the IME
percentage, shall cause the resulting IME payments to equal what the IME
payments would be with an IME factor of one, plus an amount equal to the
difference between operating payments using the adjustment factor specified in
subdivision B 1 of 12VAC30-70-331 and operating payments using an adjustment
factor of one in place of the adjustment factor specified in subdivision B 1 of
12VAC30-70-331.

2. Type Two hospitals shall receive an IME payment equal to
the hospital's Medicaid operating reimbursement times an IME percentage
determined as follows (excluding Children's Hospital of the King's
Daughters):

In both equations, r is the ratio of full-time equivalent
residents to staffed beds, excluding nursery beds. The IME payment shall be
calculated each year using the most recent reliable data regarding the number
of full-time equivalent residents and the number of staffed beds, excluding
nursery beds.

C. An additional IME payment shall be made for inpatient
hospital services provided to Medicaid patients but reimbursed by capitated
managed care providers.

1. For Type Two hospitals, this payment shall be equal to the
hospital's hospital specific operating rate per case, as determined in
12VAC30-70-311, times the hospital's HMO paid discharges times the hospital's
IME percentage, as determined in subsection B of this section.

2. For Type One hospitals, this payment shall be equal to the
hospital's hospital-specific operating rate per case, as determined in
12VAC30-70-311, times the hospital's HMO paid discharges times the hospital's
IME percentage, as determined in subsection B of this section. Effective April
1, 2012, the operating rate per case used in the formula shall be revised to
reflect an adjustment factor of one and case-mix adjusted by multiplying the
operating rate per case in this subsection by the weight per case for FFS
discharges that is determined during rebasing. This formula applies to
Children's Hospital of the King's Daughters effective July 1, 2017.

D. An additional IME payment not to exceed $200,000 in total
shall be apportioned among Type Two hospitals, excluding freestanding
children's hospitals, with Medicaid NICU utilization in excess of 50% as
reported to the Department of Medical Assistance Services as of March 1, 2004.
These payments shall be apportioned based on each eligible hospital's
percentage of Medicaid NICU patient days relative to the total of these days
among eligible hospitals as reported by March 1, 2004.

E. An additional IME payment not to exceed $500,000 in total
shall be apportioned among Type Two hospitals, excluding freestanding
children's hospitals, with Medicaid NICU days in excess of 4,500 as reported to
the Department of Medical Assistance Services as of March 1, 2005, that do not
otherwise receive an additional IME payment under subsection D of this section.
These payments shall be apportioned based on each eligible hospital's
percentage of Medicaid NICU patient days relative to the total of these days
among eligible hospitals as reported by March 1, 2003.

A. Each July, the Virginia moving average values as compiled
and published by Global Insight (or its successor), under contract with the
department shall be used to update the base year standardized operating costs
per case, as determined in 12VAC30-70-361, and the base year standardized
operating costs per day, as determined in 12VAC30-70-371, to the midpoint of
the upcoming state fiscal year. The most current table available prior to the
effective date of the new rates shall be used to inflate base year amounts to
the upcoming rate year. Thus, corrections made by Global Insight (or its
successor), in the moving averages that were used to update rates for previous
state fiscal years shall be automatically incorporated into the moving averages
that are being used to update rates for the upcoming state fiscal year.

B. The inflation adjustment for hospital operating rates, disproportionate
share hospitals (DSH) payments, and graduate medical education payments shall
be 0.0%eliminated for fiscal year (FY) 2010. The elimination of
the inflation adjustments shall not be applicable to rebasing in FY 2011.

C. In FY 2011, hospital operating rates shall be rebased;
however the 2008 base year costs shall only be increased 2.58% for inflation.
For FY 2011 there shall be no inflation adjustment for graduate medical
education (GME) or freestanding psychiatric facility rates. The inflation
adjustment shall be eliminated for hospital operating rates, GME payments, and
freestanding psychiatric facility rates for FY 2012. The inflation adjustment
shall be 2.6% for inpatient hospitals, including hospital operating rates, GME
payments, DSH payments, and freestanding psychiatric facility rates for FY
2013, and 0.0% for the same facilities for FY 2014, FY 2015, and FY 2016. For
FY 2017, the inflation adjustment for inpatient hospital operating rates, GME,
DSH, and freestanding psychiatric hospitals shall be 50% of the adjustment
calculated in subsection A of this section. In FY 2018, the inflation
adjustment for inpatient hospital operating rates, GME, DSH, and freestanding
psychiatric hospitals shall be eliminated for inpatient hospitals.

12VAC30-70-381. DRG relative weights and hospital case-mix
indices.

A. For the purposes of calculating DRG relative weights and
hospital case-mix indices, base year claims data for all groupable cases shall
be used. Base year claims data for ungroupable cases and per diem cases shall
not be used. In calculating the DRG relative weights, a transfer case shall be
counted as a fraction of a case based on the ratio of its length of stay to the
arithmetic mean length of stay for cases assigned to the same DRG as the transfer
case.

B. Using the data elements identified in subsection E of
12VAC30-70-221, the following methodology shall be used to calculate the DRG
relative weights:

1. The operating costs for each groupable case shall be
calculated by multiplying the hospital's total charges for the case by the
hospital's operating cost-to-charge ratio, as defined in subsection C of
12VAC30-70-221per diems and ancillary cost-to-charge ratios from each
hospital's cost report ending in the state fiscal year used as the base year to
the corresponding days and ancillary charges by revenue code for each
hospital's groupable cases.

2. The standardized operating costs for each groupable case
shall be calculated as follows:

a. The operating costs shall be multiplied by the statewide
average labor portion of operating costs, yielding the labor portion of
operating costs. Hence, the nonlabor portion of operating costs shall
constitute one minus the statewide average labor portion of operating costs
times the operating costs.

c. The standardized labor portion of operating costs shall be
added to the nonlabor portion of operating costs, yielding the standardized
operating costs.

3. The average standardized cost per DRG shall be calculated
by dividing the standardized operating costs for all groupable cases in the DRG
by the number of groupable cases classified in the DRG.

4. The average standardized cost per case shall be calculated
by dividing the standardized operating costs for all groupable cases by the
total number of groupable cases.

5. The average standardized cost per DRG shall be divided by
the average standardized cost per case to determine the DRG relative weight.

C. Statistical outliers shall be eliminated from the
calculation of the DRG relative weights. Within each DRG, cases shall be
eliminated if (i) their standardized costs per case are outside of 3.0 standard
deviations of the mean of the log distribution of the standardized costs per
case and (ii) their standardized costs per day are outside of 3.0 standard
deviations of the mean of the log distribution of the standardized costs per
day. To eliminate a case, both conditions must be satisfied.

D. In calculating the DRG relative weights, a threshold of
five cases shall be set as the minimum number of cases required to calculate a
reasonable DRG relative weight. In those instances where there are five or
fewer cases, the department's Medicaid claims data shall be supplemented with
Medicaid claims data from another state or other available sources. The DRG
relative weights calculated according to this methodology will result in an
average case weight that is different from the average case weight before the
supplemental claims data was added. Therefore, the DRG relative weights shall
be normalized by an adjustment factor so that the average case weight after the
supplemental claims data were added is equal to the average case weight before
the supplemental claims data were added.

E. The DRG relative weights shall be used to calculate a
case-mix index for each hospital. The case-mix index for a hospital is
calculated by summing, across all DRGs, the product of the number of groupable
cases in each DRG and the relative weight for each DRG and dividing this amount
by the total number of groupable cases occurring at the hospital.

12VAC30-80-30. Fee-for-service providers.

A. Payment for the following services, except for physician
services, shall be the lower of the state agency fee schedule (12VAC30-80-190
has information about the state agency fee schedule) or actual charge (charge
to the general public):

1. Physicians' services. Payment for physician services shall
be the lower of the state agency fee schedule or actual charge (charge to the
general public). The following limitations shall apply to emergency
physician services.

a. Definitions. The following words and terms, when used in
this subdivision 1 shall have the following meanings when applied to emergency
services unless the context clearly indicates otherwise:

"All-inclusive" means all emergency service and
ancillary service charges claimed in association with the emergency department
visit, with the exception of laboratory services.

"DMAS" means the Department of Medical Assistance
Services consistent with Chapter 10 (§ 32.1-323 et seq.) of Title 32.1 of
the Code of Virginia.

"Emergency physician services" means services
that are necessary to prevent the death or serious impairment of the health of
the recipient. The threat to the life or health of the recipient necessitates
the use of the most accessible hospital available that is equipped to furnish
the services.

"Recent injury" means an injury that has occurred
less than 72 hours prior to the emergency department visit.

b. Scope. DMAS shall differentiate, as determined by the
attending physician's diagnosis, the kinds of care routinely rendered in
emergency departments and reimburse physicians for nonemergency care rendered
in emergency departments at a reduced rate.

(1) DMAS shall reimburse at a reduced and all-inclusive
reimbursement rate for all physician services rendered in emergency departments
that DMAS determines are nonemergency care.

(2) Services determined by the attending physician to be
emergencies shall be reimbursed under the existing methodologies and at the
existing rates.

(3) Services determined by the attending physician that may
be emergencies shall be manually reviewed. If such services meet certain
criteria, they shall be paid under the methodology in subdivision 1 b (2) of
this subsection. Services not meeting certain criteria shall be paid under the
methodology in subdivision 1 b (1) of this subsection. Such criteria shall
include, but not be limited to:

(a) The initial treatment following a recent obvious
injury.

(b) Treatment related to an injury sustained more than 72
hours prior to the visit with the deterioration of the symptoms to the point of
requiring medical treatment for stabilization.

(c) The initial treatment for medical emergencies including
indications of severe chest pain, dyspnea, gastrointestinal hemorrhage,
spontaneous abortion, loss of consciousness, status epilepticus, or other
conditions considered life threatening.

(d) A visit in which the recipient's condition requires
immediate hospital admission or the transfer to another facility for further
treatment or a visit in which the recipient dies.

(f) Services provided for severe pain when combined with
one or more of the other guidelines.

(4) Payment shall be determined based on ICD diagnosis
codes and necessary supporting documentation. As used here, the term
"ICD" is defined in 12VAC30-95-5.

(5) DMAS shall review on an ongoing basis the effectiveness
of this program in achieving its objectives and for its effect on recipients,
physicians, and hospitals. Program components may be revised subject to
achieving program intent objectives, the accuracy and effectiveness of the ICD
code designations, and the impact on recipients and providers. As used here,
the term "ICD" is defined in 12VAC30-95-5.

b. The following shall be the reimbursement method used for
DME services:

(1) If the DME item has a DMERC rate, the reimbursement rate
shall be the DMERC rate minus 10%. For dates of service on or after July 1,
2014, DME items subject to the Medicare competitive bidding program shall be
reimbursed the lower of:

(a) The current DMERC rate minus 10% or

(b) The average of the Medicare competitive bid rates in
Virginia markets.

(2) For DME items with no DMERC rate, the agency shall use the
agency fee schedule amount. The reimbursement rates for DME and supplies shall
be listed in the DMAS Medicaid Durable Medical Equipment (DME) and Supplies
Listing and updated periodically. The agency fee schedule shall be available on
the agency website at www.dmas.virginia.gov.

(3) If a DME item has no DMERC rate or agency fee schedule
rate, the reimbursement rate shall be the manufacturer's net charge to the
provider, less shipping and handling, plus 30%. The manufacturer's net charge
to the provider shall be the cost to the provider minus all available discounts
to the provider. Additional information specific to how DME providers,
including manufacturers who are enrolled as providers, establish and document
their cost or costs for DME codes that do not have established rates can be
found in the relevant agency guidance document.

c. DMAS shall have the authority to amend the agency fee
schedule as it deems appropriate and with notice to providers. DMAS shall have
the authority to determine alternate pricing, based on agency research, for any
code that does not have a rate.

d. The reimbursement for incontinence supplies shall be by
selective contract. Pursuant to § 1915(a)(1)(B) of the Social Security Act
and 42 CFR 431.54(d), the Commonwealth assures that adequate services/devicesservices or devices shall be available under such arrangements.

e. Certain durable medical equipment used for intravenous
therapy and oxygen therapy shall be bundled under specified procedure codes and
reimbursed as determined by the agency. Certain services/durableservices
or durable medical equipment such as service maintenance agreements shall
be bundled under specified procedure codes and reimbursed as determined by the
agency.

(1) Intravenous therapies. The DME for a single therapy,
administered in one day, shall be reimbursed at the established service day
rate for the bundled durable medical equipment and the standard pharmacy
payment, consistent with the ingredient cost as described in 12VAC30-80-40,
plus the pharmacy service day and dispensing fee. Multiple applications of the
same therapy shall be included in one service day rate of reimbursement.
Multiple applications of different therapies administered in one day shall be
reimbursed for the bundled durable medical equipment service day rate as
follows: the most expensive therapy shall be reimbursed at 100% of cost; the
second and all subsequent most expensive therapies shall be reimbursed at 50%
of cost. Multiple therapies administered in one day shall be reimbursed at the
pharmacy service day rate plus 100% of every active therapeutic ingredient in
the compound (at the lowest ingredient cost methodology) plus the appropriate
pharmacy dispensing fee.

(2) Respiratory therapies. The DME for oxygen therapy shall
have supplies or components bundled under a service day rate based on oxygen
liter flow rate or blood gas levels. Equipment associated with respiratory
therapy may have ancillary components bundled with the main component for
reimbursement. The reimbursement shall be a service day per diem rate for
rental of equipment or a total amount of purchase for the purchase of
equipment. Such respiratory equipment shall include, but not be limited to,
oxygen tanks and tubing, ventilators, noncontinuous ventilators, and suction
machines. Ventilators, noncontinuous ventilators, and suction machines may be
purchased based on the individual patient's medical necessity and length of
need.

(3) Service maintenance agreements. Provision shall be made
for a combination of services, routine maintenance, and supplies, to be known
as agreements, under a single reimbursement code only for equipment that is
recipient owned. Such bundled agreements shall be reimbursed either monthly or
in units per year based on the individual agreement between the DME provider
and DMAS. Such bundled agreements may apply to, but not necessarily be limited
to, either respiratory equipment or apnea monitors.

7. Local health services.

8. Laboratory services (other than inpatient hospital). The
agency's rates for clinical laboratory services were set as of July 1, 2014,
and are effective for services on or after that date.

9. Payments to physicians who handle laboratory specimens, but
do not perform laboratory analysis (limited to payment for handling).

10. X-ray services.

11. Optometry services.

12. Medical supplies and equipmentReserved.

13. Home health services. Effective June 30, 1991, cost
reimbursement for home health services is eliminated. A rate per visit by
discipline shall be established as set forth by 12VAC30-80-180.

a. In addition to payments for physician services specified
elsewhere in this State Planchapter, DMAS provides supplemental
payments to Type I physicians for furnished services provided on or after July
2, 2002. A Type I physician is a member of a practice group organized by or
under the control of a state academic health system or an academic health
system that operates under a state authority and includes a hospital, who has
entered into contractual agreements for the assignment of payments in
accordance with 42 CFR 447.10.

b. Effective July 2, 2002, the supplemental payment amount for
Type I physician services shall be the difference between the Medicaid payments
otherwise made for Type I physician services and Medicare rates. Effective
August 13, 2002, the supplemental payment amount for Type I physician services
shall be the difference between the Medicaid payments otherwise made for
physician services and 143% of Medicare rates. Effective January 3, 2012, the
supplemental payment amount for Type I physician services shall be the
difference between the Medicaid payments otherwise made for physician services
and 181% of Medicare rates. Effective January 1, 2013, the supplemental payment
amount for Type I physician services shall be the difference between the
Medicaid payments otherwise made for physician services and 197% of Medicare
rates. Effective April 8, 2014, the supplemental payment amount for Type I
physician services shall be the difference between the Medicaid payments
otherwise made for physician services and 201% of Medicare rates.

c. The methodology for determining the Medicare equivalent of
the average commercial rate is described in 12VAC30-80-300.

d. Supplemental payments shall be made quarterly no later than
90 days after the end of the quarter.

e. Payment will not be made to the extent that the payment
would duplicate payments based on physician costs covered by the supplemental
payments.

a. In addition to payments for physician services specified
elsewhere in this State Planchapter, DMAS provides supplemental
payments to Virginia freestanding children's hospital physicians providing
services at freestanding children's hospitals with greater than 50% Medicaid
inpatient utilization in state fiscal year 2009 for furnished services provided
on or after July 1, 2011. A freestanding children's hospital physician is a
member of a practice group (i) organized by or under control of a qualifying
Virginia freestanding children's hospital, or (ii) who has entered into
contractual agreements for provision of physician services at the qualifying
Virginia freestanding children's hospital and that is designated in writing by
the Virginia freestanding children's hospital as a practice plan for the quarter
for which the supplemental payment is made subject to DMAS approval. The
freestanding children's hospital physicians also must have entered into
contractual agreements with the practice plan for the assignment of payments in
accordance with 42 CFR 447.10.

b. Effective July 1, 2011, the supplemental payment amount for
freestanding children's hospital physician services shall be the difference
between the Medicaid payments otherwise made for freestanding children's
hospital physician services and 143% of Medicare rates as defined in the
supplemental payment calculation described in the Medicare equivalent of the
average commercial rate methodology (see 12VAC30-80-300), subject to the
following reduction. Final payments shall be reduced on a prorated basis so
that total payments for freestanding children's hospital physician services are
$400,000 less annually than would be calculated based on the formula in the
previous sentence. Effective July 1, 2015, the supplemental payment amount
for freestanding children's hospital physician services shall be the difference
between the Medicaid payments otherwise made for freestanding children's
hospital physician services and 178% of Medicare rates as defined in the
supplemental payment calculation for Type I physician services. Payments
shall be made quarterly no later than 90 days after the end of the quarter.
The methodology for determining the Medicare equivalent of the average
commercial rate is described in 12VAC30-80-300on the same schedule as
Type I physicians.

a. In addition to payments for physician services specified
elsewhere in the State Planthis chapter, the Department of
Medical Assistance Services provides supplemental payments to physicians
affiliated with publicly funded medical schools in TidewaterEastern
Virginia Medical Center for furnished services provided on or after October
1, 2012. A physician affiliated with a publicly funded medical schoolEastern
Virginia Medical Center is a physician who is employed by a publicly funded
medical school that is a political subdivision of the Commonwealth of Virginia,
who provides clinical services through the faculty practice plan affiliated
with the publicly funded medical school, and who has entered into contractual agreementsarrangements for the assignment of payments in accordance with 42 CFR
447.10.

b. Effective October 1, 20122015, the
supplemental payment amount for services furnished by physicians affiliated
with publicly funded medical schools in Tidewater shall be the difference
between the Medicaid payments otherwise made for physician services and 135%137% of Medicare rates. The methodology for determining the Medicare
equivalent of the average commercial rate is described in 12VAC30-80-300.

c. Supplemental payments shall be made quarterly, no
later than 90 days after the end of the quarter.

19. Supplemental payments for services provided by
physicians at freestanding children's hospitals serving children in Planning
District 8.

a. In addition to payments for physician services specified
elsewhere in this chapter, DMAS shall make supplemental payments for physicians
employed at a freestanding children's hospital serving children in Planning
District 8 with more than 50% Medicaid inpatient utilization in fiscal year
2014. This applies to physician practices affiliated with Children's National
Health System.

b. The supplemental payment amount for qualifying physician
services shall be the difference between the Medicaid payments otherwise made
and 178% of Medicare rates but no more than $551,000 for all qualifying
physicians. The methodology for determining allowable percent of Medicare rates
is based on the Medicare equivalent of the average commercial rate described in
this chapter.

c. Supplemental payments shall be made quarterly no later
than 90 days after the end of the quarter. Any quarterly payment that would
have been due prior to the approval date shall be made no later than 90 days
after the approval date.

a. In addition to payments for clinic services specified
elsewhere in the regulations, DMAS provides supplemental payments to qualifying
nonstate government-owned or government-operated clinics for outpatient
services provided to Medicaid patients on or after July 2, 2002. Clinic means a
facility that is not part of a hospital but is organized and operated to
provide medical care to outpatients. Outpatient services include those
furnished by or under the direction of a physician, dentist or other medical
professional acting within the scope of his license to an eligible individual.
Effective July 1, 2005, a qualifying clinic is a clinic operated by a community
services board. The state share for supplemental clinic payments will be funded
by general fund appropriations.

b. The amount of the supplemental payment made to each
qualifying nonstate government-owned or government-operated clinic is
determined by:

(1) Calculating for each clinic the annual difference between
the upper payment limit attributed to each clinic according to subdivision 1920 d of this subsection and the amount otherwise actually paid for the
services by the Medicaid program;

(2) Dividing the difference determined in subdivision 1920 b (1) of this subsection for each qualifying clinic by the aggregate
difference for all such qualifying clinics; and

(3) Multiplying the proportion determined in subdivision 1920 b (2) of this subsection by the aggregate upper payment limit amount
for all such clinics as determined in accordance with 42 CFR 447.321 less all
payments made to such clinics other than under this section.

c. Payments for furnished services made under this section maywill be made in one or more installments at such times, within the
fiscal year or thereafter, as is determined by DMASannually in a lump
sum during the last quarter of the fiscal year.

d. To determine the aggregate upper payment limit referred to
in subdivision 1920 b (3) of this subsection, Medicaid payments
to nonstate government-owned or government-operated clinics will be divided by
the "additional factor" whose calculation is described in Attachment
4.19-B, Supplement 4 (12VAC30-80-190 B 2) in regard to the state
agency fee schedule for Resource Based Relative Value Scale. Medicaid payments
will be estimated using payments for dates of service from the prior fiscal
year adjusted for expected claim payments. Additional adjustments will be made
for any program changes in Medicare or Medicaid payments.

20.21. Personal assistance services (PAS) for
individuals enrolled in the Medicaid Buy-In program described in
12VAC30-60-200. These services are reimbursed in accordance with the state
agency fee schedule described in 12VAC30-80-190. The state agency fee schedule
is published on the DMAS website at http://www.dmas.virginia.gov.

B. Hospice services payments must be no lower than the
amounts using the same methodology used under Part A of Title XVIII, and take
into account the room and board furnished by the facility, equal to at least
95% of the rate that would have been paid by the state under the plan for
facility services in that facility for that individual. Hospice services shall
be paid according to the location of the service delivery and not the location
of the agency's home office.

12VAC30-80-36. Fee-for-service providers: outpatient hospitals.

A. Definitions. The following words and terms when used in
this section shall have the following meanings unless the context clearly
indicates otherwise:

"Enhanced ambulatory patient group" or
"EAPG" means a defined group of outpatient procedures, encounters, or
ancillary services that incorporates International Classification of Diseases
(ICD) diagnosis codes, Current Procedural Terminology (CPT) codes, and
Healthcare Common Procedure Coding System (HCPCS) codes.

"EAPG relative weight" means the expected average
costs for each EAPG divided by the relative expected average costs for visits
assigned to all EAPGs.

"Base year" means the state fiscal year for which
data is used to establish the EAPG base rate. The base year will change when
the EAPG payment system is rebased and recalibrated. In subsequent rebasings,
DMAS shall notify affected providers of the base year to be used in this
calculation.

"Cost" means the reported cost as described in
12VAC30-80-20 A and B.

"Cost-to-charge ratio" equals the hospital's total
costs divided by the hospital's total charges. The cost-to-charge ratio shall
be calculated using data from cost reports from hospital fiscal years ending in
the state fiscal year used as the base year.

"Medicare wage index" means the Medicare wage index
published annually in the Federal Register by the Centers for Medicare and
Medicaid Services. The indices used in this section shall be those in effect in
the base year.

B. Effective January 1, 2014, the prospective enhanced
ambulatory patient group (EAPG) based payment system described in this
subsection shall apply to reimbursement for outpatient hospital services (with
the exception of laboratory services referred to the hospital but not
associated with an outpatient hospital visit, which will be reimbursed
according to the laboratory fee schedule).

1. The payments for outpatient hospital visits shall be
determined on the basis of a hospital-specific base rate per visit multiplied
by the relative weight of the EAPG (and the payment action) assigned for each
of the services performed during a hospital visit.

2. The EAPG relative weights shall be the weights determined
and published periodically by DMAS and shall be consistent with applicable
Medicaid reimbursement limits and policies. The weights shall be updated at
least every three years.

3. The statewide base rate shall be equal to the total costs
described in this subdivision divided by the wage-adjusted sum of the EAPG
weights for each facility. The wage-adjusted sum of the EAPG weights shall
equal the sum of the EAPG weights multiplied by the labor percentage times
the hospital's Medicare wage index plus the sum of the EAPG weights multiplied
by the nonlabor percentage. The base rate shall be determined for outpatient
hospital services at least every three years so that total expenditures will
equal the following:

a. When using base years prior to January 1, 2014, for all
services, excluding all laboratory services and emergency services described in
subdivision 3 c of this subsection, a percentage of costs as reported in the
available cost reports for the base period for each type of hospital as defined
in 12VAC30-70-221.

(1) Type One hospitals. Effective January 1, 2014, hospital
outpatient operating reimbursement shall be calculated at 90.2% of cost, and
capital reimbursement shall be at 86% of cost inflated to the rate year.

(2) Type Two hospitals. Effective January 1, 2014, hospital
outpatient operating and capital reimbursement shall be calculated at 76% of
cost inflated to the rate year.

When using base years after January 1, 2014, the percentages
described in subdivision 3 a of this subsection shall be adjusted according to
subdivision 3 c of this subsection.

b. Laboratory services, excluding laboratory services referred
to the hospital but not associated with a hospital visit, are calculated at the
fee schedule in effect for the rate year.

c. Services rendered in emergency departments determined to be
nonemergencies as prescribed in 12VAC30-80-20 D 1 b shall be calculated at the
nonemergency reduced rate reported in the base year for base years prior to
January 1, 2014. For base years after January 1, 2014, the cost percentages in
subdivision 3 a of this subsection shall be adjusted to reflect services paid
at the nonemergency reduced rate in the last year prior to January 1, 2014.

4. Inflation adjustment to base year costs. Each July, the
Virginia moving average values as compiled and published by Global Insight (or
its successor), under contract with DMAS, shall be used to update the base year
costs to the midpoint of the rate year. The most current table available prior
to the effective date of the new rates shall be used to inflate base year
amounts to the upcoming rate year. Thus, corrections made by Global Insight (or
its successor) in the moving averages that were used to update rates for
previous state fiscal years shall be automatically incorporated into the moving
averages that are being used to update rates for the upcoming state fiscal
year. Inflation shall be applied to the costs identified in subdivision 3 a of
this subsection. The inflation adjustment for state fiscal year 2017 shall
be 50% of the full inflation adjustment calculated according to this section.
There shall be no inflation adjustment for state fiscal year 2018.

5. Hospital-specific base rate. The hospital-specific base
rate per case shall be adjusted for geographic variation. The hospital-specific
base rate shall be equal to the labor portion of the statewide base rate
multiplied by the hospital's Medicare wage index plus the nonlabor percentage
of the statewide base rate. The labor percentage shall be determined at each
rebasing based on the most recently reliable data. For rural hospitals, the
hospital's Medicare wage index used to calculate the base rate shall be the
Medicare wage index of the nearest metropolitan wage area or the effective
Medicare wage index, whichever is higher. A base rate differential of 5.0%
shall be established for freestanding Type Two children's hospitals. The base
rate for non-cost-reporting hospitals shall be the average of the
hospital-specific base rates of in-state Type Two hospitals.

6. The total payment shall represent the total allowable
amount for a visit including ancillary services and capital.

7. The transition from cost-based reimbursement to EAPG
reimbursement shall be transitioned over a four-year period. DMAS shall
calculate a cost-based base rate at January 1, 2014, and at each rebasing
during the transition.

a. Effective for dates of service on or after January 1, 2014,
DMAS shall calculate the hospital-specific base rate as the sum of 75% of the
cost-based base rate and 25% of the EAPG base rate.

b. Effective for dates of service on or after July 1, 2014,
DMAS shall calculate the hospital-specific base rate as the sum of 50% of the
cost-based base rate and 50% of the EAPG base rate.

c. Effective for dates of service on or after July 1, 2015,
DMAS shall calculate the hospital-specific base rate as the sum of 25% of the
cost-based base rate and 75% of the EAPG base rate.

d. Effective for dates of service on or after July 1, 2016,
DMAS shall calculate the hospital-specific base rate as the EAPG base rate.

8. To maintain budget neutrality during the first six years of
the transition to EAPG reimbursement, DMAS shall compare the total
reimbursement of hospital claims based on the parameters in subdivision 3 of
this subsection to EAPG reimbursement every six months based on the six months
of claims ending three months prior to the potential adjustment. If the
percentage difference between the reimbursement target in subdivision 3 of this
subsection and EAPG reimbursement is greater than 1.0%, plus or minus, DMAS
shall adjust the statewide base rate by the percentage difference the following
July 1 or January 1. The first possible adjustment would be January 1, 2015,
using reimbursement between January 1, 2014, and October 31, 2014.

C. The enhanced ambulatory patient group (EAPG) grouper
version used for outpatient hospital services shall be determined by DMAS.
Providers or provider representatives shall be given notice prior to
implementing a new grouper.

D. The primary data sources used in the development of the
EAPG payment methodology are the DMAS hospital computerized claims history file
and the cost report file. The claims history file captures available claims
data from all enrolled, cost-reporting general acute care hospitals. The cost
report file captures audited cost and charge data from all enrolled general
acute care hospitals. The following table identifies key data elements that are
used to develop the EAPG payment methodology. DMAS may supplement this data
with similar data for Medicaid services furnished by managed care organizations
if DMAS determines that it is reliable.

Data Elements for EAPG Payment Methodology

Data Elements

Source

Total charges for each outpatient hospital visit

Claims history file

Number of groupable claims lines in each EAPG

Claims history file

Total number of groupable claim lines

Claims history file

Total charges for each outpatient hospital revenue line

Claims history file

Total number of EAPG assignments

Claims history file

Cost-to-charge ratio for each hospital

Cost report file

Medicare wage index for each hospital

Federal Register

12VAC30-80-180. Establishment of rate per visit for home health
services.

A. Effective for dates of services on and after July 1, 1991,
the Department of Medical Assistance Services (DMAS) shall reimburse home
health agencies (HHAs) at a flat rate per visit for each type of service
rendered by HHAs (i.e., nursing, physical therapy, occupational therapy,
speech-language pathology services, and home health aide services.) In
addition, supplies left in the home and extraordinary transportation costs will
be paid at specific rates.

B. Effective for dates of services on and after July 1, 1993,
DMAS shall establish a flat rate for each level of service for HHAs by peer
group. There shall be three peer groups: (i) the Department of Health's HHAs,
(ii) non-Department of Health HHAs whose operating office is located in the
Virginia portion of the Washington DC-MD-VA metropolitan statistical area, and
(iii) non-Department of Health HHAs whose operating office is located in the
rest of Virginia. The use of the Health Care Financing Administration (HCFA)
designation of urban metropolitan statistical areas (MSAs) shall be
incorporated in determining the appropriate peer group for these
classifications.

The Department of Health's agencies are being placed in a
separate peer group due to their unique cost characteristics (only one
consolidated cost report is filed for all Department of Health agencies).

C. Rates shall be calculated as follows:

1. Each home health agency shall be placed in its appropriate
peer group.

2. Department of Health HHAs Medicaid cost per visit
(exclusive of medical supplies costs) shall be obtained from its 1989
cost-settled Medicaid cost report. Non-Department of Health HHAs Medicaid cost
per visit (exclusive of medical supplies costs) shall be obtained from the 1989
cost-settled Medicaid Cost Reports filed by freestanding HHAs. Costs shall be
inflated to a common point in time (June 30, 1991) by using the percent of
change in the moving average factor of the Data Resources Inc., (DRI), National
Forecast Tables for the Home Health Agency Market Basket (as published
quarterly).

3. To determine the flat rate per visit effective July 1,
1993, the following methodology shall be utilized:

a. The peer group HHAs per visit rates shall be ranked and weighted
by the number of Medicaid visits per discipline to determine a median rate per
visit for each peer group at July 1, 1991.

b. The HHA's peer group median rate per visit for each peer
group at July 1, 1991, shall be the interim peer group rate for calculating the
update through January 1, 1992. The interim peer group rate shall be updated by
100% of historical inflation from July 1, 1991, through December 31, 1992, and
shall become the final interim peer group rate that shall be updated by 50% of the
forecasted inflation to the end of December 31, 1993, to establish the final
peer group rates. The lower of the final peer group rates or the Medicare upper
limit at January 1, 1993, will be effective for payments from July 1, 1993,
through December 1993.

c. Separate rates shall be provided for the initial
assessment, follow-up, and comprehensive visits for skilled nursing and for the
initial assessment and follow-up visits for physical therapy, occupational
therapy, and speech therapy. The comprehensive rate shall be 200% of the
follow-up rate, and the initial assessment rates shall be $15 higher than the
follow-up rates. The lower of the peer group median or Medicare upper limits
shall be adjusted as appropriate to assure budget neutrality when the higher
rates for the comprehensive and initial assessment visits are calculated.

4. The fee schedule shall be adjusted annually beginning July
1, 2010, based on the percent of change in the moving average of the National
Forecast Tables for the Home Health Agency Market Basket published by Global
Insight (or its successor) for the second quarter of the calendar year in which
the fiscal year begins. The report shall be the latest published report prior
to the fiscal year. The method to calculate the annual update shall be:

a. All subsequent year peer group rates shall be calculated
utilizing the previous final peer group rate established on July 1.

b. The annual July 1 update shall be compared to the Medicare
upper limit per visit in effect on each January 1, and the HHAs shall receive
the lower of the annual update or the Medicare upper limit per visit as the
final peer group rate.

E. Effective July 1, 2010, through June 30, 2016, there shall
be no inflation adjustment for home health agencies. Effective July 1, 2017,
through June 30, 2018, the annual fee schedule adjustment for inflation shall
be reduced by 50%.

1. Effective for dates of service on and after July 1, 2009,
rehabilitation agencies or comprehensive outpatient rehabilitation facilities,
excluding those operated by community services boards or state agencies, shall
be reimbursed a prospective rate equal to the lesser of the agency's fee
schedule amount or billed charges per procedure. The agency shall develop a
statewide fee schedule based on CPTCurrent Procedural Terminology
(CPT) codes to reimburse providers what the agency estimates they would
have been paid in FY 2010 minus $371,800.

2. Effective for dates of service on and after October 1,
2009, rehabilitation agencies or comprehensive outpatient rehabilitation
facilities, excluding those operated by state agencies shall be reimbursed a
prospective rate equal to the lesser of the agency's fee schedule amount or
billed charges per procedure. The agency shall develop a statewide fee schedule
based on CPT codes to reimburse providers what the agency estimates they would
have been paid in FY 2010 minus $371,800.

B. Reimbursement for rehabilitation agencies subject to the
new fee schedule methodology.

1. Payments for the fiscal year ending or in progress on June
30, 2009, shall be settled for private rehabilitation agencies based on the
previous prospective rate methodology and the ceilings in effect for that
fiscal year as of June 30, 2009.

2. Payments for the fiscal year ending or in progress on
September 30, 2009, shall be settled for community services boards based on the
previous prospective rate methodology and the ceilings in effect for that
fiscal year as of September 30, 2009.

C. Beginning with state fiscal years beginning on or after
July 1, 2010, rates shall be adjusted annually for inflation using the
Virginia-specific nursing home input price index contracted for by the agency.
The agency shall use the percent moving average for the quarter ending at the
midpoint of the rate year from the most recently available index prior to the
beginning of the rate year.

D. Reimbursement for physical therapy, occupational therapy,
and speech-language therapy services shall not be provided for any sums that
the rehabilitation provider collects, or is entitled to collect, from the
nursing facility or any other available source, and provided further, that this
subsection shall in no way diminish any obligation of the nursing facility to
DMAS to provide its residents such services, as set forth in any applicable
provider agreement.

E. Effective July 1, 2010, through June 30, 2016, there will
be no inflation adjustment for outpatient rehabilitation facilities. Effective
July 1, 2017, through June 30, 2018, outpatient rehabilitation facilities will
receive a rate adjustment equal to 50% of inflation as calculated in subsection
C of this section.

1. The department shall calculate the cost per day in the base
year for direct and indirect operating costs for each nursing facility. The
department shall use existing definitions of direct and indirect costs.

2. The initial base year for calculating the cost per day
shall be cost reports ending in calendar year 2011. The department shall rebase
prices in fiscal year 2018 and every three years thereafter using the most
recent, reliable calendar year cost-settled cost reports for freestanding
nursing facilities that have been completed as of September 1. No adjustments
will be made to the base year data for purposes of rate setting after that
date.

3. Each nursing facility's direct cost per day shall be
neutralized by dividing the direct cost per day by the raw Medicaid facility
case-mix that corresponds to the base year by facility.

4. Costs per day shall be inflated to the midpoint of the
fiscal year rate period using the moving average Virginia Nursing Home
inflation index for the fourth quarter of each year (the midpoint of the fiscal
year). Costs in the 2011 base year shall be inflated from the midpoint of the
cost report year to the midpoint of fiscal year 2012 by prorating fiscal year
2012 inflation and annual inflation after that. Annual inflation adjustments
shall be based on the last available report prior to the beginning of the
fiscal year and corrected for any revisions to prior year inflation. Effective
July 1, 2015, through June 30, 2016, the inflation adjustment for nursing
facility operating rates shall be 0.0%.

5. Prices will be established for the peer groups described in
this section using a combination of Medicare wage regions and Medicaid rural
and bed size modifications based on similar costs.

6. The following definitions shall apply to direct peer
groups. The Northern Virginia peer group shall be defined as localities in the
Washington DC-MD-VA MSA as published by the Centers for Medicare and Medicaid
Services (CMS) for skilled nursing facility rates. The Other MSAMSAs
peer group includes localities in any MSA defined by CMS other than the
Northern Virginia MSA and non-MSA designations. The Rural peer groups are
non-MSA areas of the state divided into Northern Rural and Southern Rural peer
groups based on drawing a line between the following points on the Commonwealth
of Virginia map with the coordinates: 37.4203914 Latitude, 82.0201219 Longitude
and 37.1223664 Latitude, 76.3457773 Longitude. Direct peer groups are:

a. Northern Virginia,

b. Other MSAs,

c. Northern Rural, and

d. Southern Rural.

7. The following definitions shall apply to indirect peer
groups. The indirect peer group for Northern Virginia is the same as the direct
peer group for Northern Virginia. Rest of State peer groups shall be defined as
any localities other than localities in the Northern Virginia peer group for
nursing facilities with greater than 60 beds or 60 beds or less. Rest of State
- Greater than 60 Beds shall be further subdivided into Other MSAMSAs,
Northern Rural and Southern Rural peer groups using the locality definitions
for direct peer groups. Indirect peer groups are:

a. Northern Virginia MSA,

b. Rest of State - Greater than 60 Beds,

c. Other MSAs,

d. Northern Rural, and

e. Southern Rural.

Rest of State - 60 Beds or Less.

8. Any changes to peer group assignment based on changes in
bed size or MSA will be implemented for reimbursement purposes the July 1
following the effective date of the change. For rebasings effective on or
after July 1, 2020, the department shall move nursing facilities located in the
former Danville Metropolitan Statistical Area to the Other MSAs peer group.

9. The direct and indirect price for each peer group shall be
based on the following adjustment factors:

a. Direct adjustment factor - 105.000% of the peer group
day-weighted median neutralized and inflated cost per day for freestanding
nursing facilities. Effective July 1, 2017, the direct adjustment factor
shall be 106.8% of the peer group day-weighted median neutralized and inflated
cost per day for freestanding nursing facilities.

b. Indirect adjustment factor - 100.735% of the peer group
day-weighted median inflated cost per day for freestanding nursing facilities. Effective
July 1, 2017, the indirect adjustment factor shall be 101.3% of the peer group
day-weighted median inflated cost per day for freestanding nursing facilities.

10. Facilities with costs projected to the rate year below 95%
of the price shall have an adjusted price equal to the price minus the
difference between the facility's cost and 95% of the unadjusted price.
Adjusted prices will be established at each rebasing. New facilities after the
base year shall not have an adjusted price until the next rebasing.

11. Special circumstances.

a. Effective July 1, 2017, the department shall increase
the direct and indirect operating rates under the nursing facility price based
reimbursement methodology by 15% for nursing facilities where at least 80% of
the resident population has one or more of the following diagnoses:
quadriplegia, traumatic brain injury, multiple sclerosis, paraplegia, or
cerebral palsy. In addition, a qualifying facility must have at least 90%
Medicaid utilization and a nursing facility case-mix index of 1.15 or higher in
fiscal year 2014.

b. Effective July 1, 2017, through June 30, 2020, nursing
facilities located in the former Danville Metropolitan Statistical Area shall
be paid the operating rates calculated for the Other MSAs peer group.

11.12. Individual claim payment for direct
costs shall be based on each resident's Resource Utilization Group (RUG) during
the service period times the facility direct price.

12.13. Resource Utilization Group (RUG) is a
resident classification system that groups nursing facility residents according
to resource utilization and assigns weights related to the resource utilization
for each classification. The department shall use RUGs to determine facility
case-mix for cost neutralization as defined in 12VAC30-90-306 in determining
the direct costs used in setting the price and for adjusting the claim payments
for residents.

a. The department shall neutralize direct costs per day in the
base year using the most current RUG grouper applicable to the base year.

b. The department shall utilize RUG-III, version 34 groups and
weights in fiscal years 2015 through 2017 for claim payments.

c. Beginning in fiscal year 2018, the department shall
implement RUG-IV, version 48 Medicaid groups and weights for claim payments.

d. RUG-IV, version 48 weights used for claim payments will be
normalized to RUG-III, version 34 weights as long as base year costs are
neutralized by the RUG-III 34 group. In that the weights are not the same under
RUG-IV as under RUG-III, normalization will ensure that total direct operating
payments using the RUG-IV 48 weights will be the same as total direct operating
payments using the RUG-III 34 grouper.

B. Transition. The department shall transition to the
price-based methodology over a period of four years, blending the adjusted
price-based rate with the facility-specific case-mix neutral cost-based rate
calculated according to 12VAC30-90-41 as if ceilings had been rebased for
fiscal year 2015. The cost-based rates are calculated using the 2011 base year
data, inflated to 2015 using the inflation methodology in 12VAC30-90-41 and
adjusted to state fiscal year 2015. In subsequent years of the transition, the
cost-based rates shall be increased by inflation described in this section.

1. Based on a four-year transition, the rate will be based on
the following blend:

a. Fiscal year 2015 - 25% of the adjusted price-based rate and
75% of the cost-based rate.

b. Fiscal year 2016 - 50% of the adjusted price-based rate and
50% of the cost-based rate.

c. Fiscal year 2017 - 75% of the adjusted price-based rate and
25% of the cost-based rate.

2. During the first transition year for the period July 1,
2014, through October 31, 2014, DMAS shall case-mix adjust each facility's
direct cost component of the rates using the average facility case-mix from the
two most recent finalized quarters (September and December 2013) instead of
adjusting this component claim by claim.

3. Cost-based rates to be used in the transition for
facilities without cost data in the base year but placed in service prior to
July 1, 2013, shall be determined based on the most recently settled cost data.
If there is no settled cost report at the beginning of a fiscal year, then 100%
of the price-based rate shall be used for that fiscal year. Facilities placed
in service after June 30, 2013, shall be paid 100% of the price-based rate.

4. Effective July 1, 2015, nursing facilities whose licensed
bed capacity decreased by at least 30 beds after 2011 and whose occupancy
increased from less than 70% in 2011 to more than 80% in 2013 shall be
reimbursed the price-based operating rate rather than the transition operating
rate.

C. Prospective capital rates shall be calculated in the
following manner:

1. Fair rental value (FRV) per diem rates for the fiscal year
shall be calculated for all freestanding nursing facilities based on the prior calendar
year information aged to the fiscal year and using RS Means factors and rental
rates corresponding to the fiscal year as prescribed in 12VAC30-90-36. There
will be no separate calculation for beds subject to or not subject to
transition.

2. Nursing facilities that put into service a major renovation
or new beds may request a mid-year fair rental value per diem rate change.

a. A major renovation shall be defined as an increase in
capital of $3,000 per bed. The nursing facility shall submit complete pro forma
documentation at least 60 days prior to the effective date, and the new rate
shall be effective at the beginning of the month following the end of the 60
days.

b. The provider shall submit final documentation within 60
days of the new rate effective date, and the department shall review final
documentation and modify the rate if necessary effective 90 days after the
implementation of the new rate. No mid-year rate changes shall be made for an
effective date after April 30 of the fiscal year.

3. These FRV changes shall also apply to specialized care
facilities.

4. The capital per diem rate for hospital-based nursing
facilities shall be the last settled capital per diem.

Subpart XVII
Specialized Care Services

12VAC30-90-264. Specialized care services.

Specialized care services provided in conformance with
12VAC30-60-40 E and H, 12VAC30-60-320, and 12VAC30-60-340 shall be reimbursed
under the following methodology. The nursing facilities that provide adult
specialized care for the categories of Ventilator Dependent Care, will be
placed in one group for rate determination. The nursing facilities that provide
pediatric specialized care in a dedicated pediatric unit of eight beds or more
will be placed in a second group for rate determination.

1. Routine operating cost. Routine operating cost shall be
defined as in 12VAC30-90-271 and 12VAC30-90-272. To calculate the routine
operating cost reimbursement rate, routine operating cost shall be converted to
a per diem amount by dividing it by actual patient days. Effective July 1,
2016, the base year for routine operating cost shall be the most recently
settled cost reports with a fiscal year ending in a calendar year for all
specialized care facilities as of the end of the calendar year prior to the
prospective rate year.

2. Allowable cost identification and cost reimbursement
limitations. The provisions of Article 5 (12VAC30-90-50 et seq.) of Subpart II
of Part II of this chapter and of Appendix III (12VAC30-90-290) of Part III of
this chapter shall apply to specialized care cost and reimbursement.

3. Routine operating cost rates. Each facility shall be
reimbursed a prospective rate for routine operating costs. This rate will be
the lesser of the facility-specific prospective routine operating ceiling, or the
facility-specific prospective routine operating cost per day plus an efficiency
incentive. This efficiency incentive shall be calculated by the same method as
in 12VAC30-90-41.

a. Statewide ceiling. The statewide routine operating ceiling
shall be $415 as of July 1, 2002. This routine operating ceiling amount shall
be adjusted for inflation based on 12VAC30-90-41. Effective July 1, 2016,
the routine operating ceiling shall be $573.09 as of state fiscal year 2015 and
shall be adjusted for inflation based on 12VAC-30-90-44 to the upcoming state
fiscal year, the prospective rate year.

b. The portion of the statewide routine operating ceiling
relating to nursing salaries (as determined by the 1994 audited cost report
data, or 67.22%) will be wage adjusted using a normalized wage index. The
normalized wage index shall be the wage index applicable to the individual provider's
geographic location under Medicare rules of reimbursement for skilled nursing
facilities, divided by the statewide average of such wage indices across the
state. This normalization of wage indices shall be updated January 1, after
each time the CMS publishes wage indices for skilled nursing facilities.
Updated normalization shall be effective for fiscal years starting on and after
the January 1 for which the normalization is calculated. Effective July 1,
2016, the normalized wage index for the federal fiscal year following the base
year shall be applied to the state fiscal year ceiling.

5. Facility-specific prospective routine operating base cost
per day. The facility-specific routine operating cost per day to be used in the
calculation of the routine operating rate and the efficiency incentive shall be
the actual routine cost per day from the most recent fiscal year's cost report,
adjusted for inflation based on 12VAC30-90-41. Effective July 1, 2016, the
routine operating base cost per day in subdivision 1 of this subsection shall
be adjusted for inflation based on 12VAC30-90-44 to the upcoming state fiscal
year, the prospective rate year.

6. Interim rates. Interim rates, for processing claims during
the year, shall be calculated from the most recent settled cost report
available at the time the interim rates must be set, except that failure to
submit a cost report timely may result in adjustment to interim rates as
provided elsewhere. Effective July 1, 2016, this subdivision is no longer
applicable.

7. Ancillary costs. Specialized care ancillary costs will be
paid on a pass-through basis for those Medicaid specialized care patients who
do not have Medicare or any other sufficient third-party insurance coverage.
Ancillary costs will be reimbursed as follows:

a. All covered ancillary services, except kinetic therapy
devices, will be reimbursed for reasonable costs as defined in the current
NHPS. Effective for specialized care days on or after January 15, 2007,
reimbursement for reasonable costs shall be subject to a ceiling. The ceiling
shall be $238.81 per day for calendar year 2004 (150% of average costs) and
shall be inflated to the appropriate provider fiscal year. For cost report
years beginning in each calendar year, ancillary ceilings will be inflated
based on 12VAC30-90-41. See 12VAC30-90-290 for the cost reimbursement
limitations. Effective July 1, 2016, the ancillary ceiling of $300.38 in
state fiscal year 2015, inclusive of kinetic therapy devices, shall be adjusted
for inflation to the prospective rate year based on 12VAC30-90-44.

b. Kinetic therapy devices will have a limit per day (based on
1994 audited cost report data inflated to the rate period). See 12VAC30-90-290
for the cost reimbursement limitations.

c. Kinetic therapy devices will be reimbursed only if a
resident is being treated for wounds that meet the following wound care
criteria. Residents receiving this wound care must require kinetic bed therapy
(that is, low air loss mattresses, fluidized beds, and/or rotating/turning
bedsor rotating or turning beds) and require treatment for a grade
(stage) IV decubitus, a large surgical wound that cannot be closed, or second
to third degree burns covering more than 10% of the body.

8. Covered ancillary services are defined as follows: laboratory,
X-ray, medical supplies (e.g., infusion pumps, incontinence supplies), physical
therapy, occupational therapy, speech therapy, inhalation therapy, IV therapy,
enteral feedings, and kinetic therapy. The following are not specialized care
ancillary services and are excluded from specialized care reimbursement:
physician services, psychologist services, total parenteral nutrition (TPN),
and drugs. These services must be separately billed to DMAS. An interim rate
for the covered ancillary services will be determined (using data from the most
recent settled cost report) by dividing allowable ancillary costs by the number
of patient days for the same cost reporting period. The interim rate will be
retroactively cost settled based on the specialized care nursing facility cost
reporting period.

9. Capital costs. Effective July 1, 20012016,
capital cost reimbursement rate shall be based on subsection C of
12VAC30-90-44 in accordance with 12VAC30-90-35 through,
12VAC30-90-36, and 12VAC30-90-37, except that the required occupancy
percentage shall not be separately applied to specialized care. Capital cost
related to specialized care patients will be cost settled on the respective
nursing facility's cost reporting period. In this cost settlement, the required
occupancy percentage shall be applied to all the nursing facility's licensed
nursing facility beds, inclusive of specialized care. To determine the
capital cost related to specialized care patients, the following calculation
shall be applied.

a. Licensed beds, including specialized care beds, multiplied
by days in the cost reporting period, shall equal available days.

b. The required occupancy days shall equal the required
occupancy percentage multiplied by available days.

c. The required occupancy days minus actual resident days,
including specialized care days, shall equal the shortfall of days. If the
shortfall of days is negative, the shortfall of days shall be zero.

d. Actual resident days, not including specialized care days,
plus the shortfall of days shall equal the minimum number of days to be used to
calculate the capital cost per day.

10. Nurse aide training and competency evaluation programs and
competency evaluation programs (NATCEP) costs. NATCEP costs will be paid on
a pass-through basis in accordance with the current NHPS. Effective July 1,
2016, NATCEP costs shall be paid on a prospective basis in accordance with
12VAC30-90-170.

11. Pediatric routine operating cost rate. For pediatric
specialized care in a distinct part pediatric specialized care unit, one
routine operating cost ceiling will be developed. The routine operating cost
ceiling will be $418 as of July 1, 2002. Effective July 1, 2016, the
pediatric routine operating cost ceiling shall be $577.24.

a. The statewide operating ceiling shall be adjusted for each
nursing facility in the same manner as described in subdivision 4 of this
section.

b. The final routine operating cost reimbursement rate shall
be computed as described for other than pediatric units in subdivision 3 of
this section.

12. Pediatric unit capital cost. Pediatric unit capital costs
will be reimbursed in accordance with the current NHPSsubdivision 9
of this section, except that the occupancy requirement shall be 70% rather
than the required occupancy percentage.